The U.S. commercial real estate market – including Philly office space and Philly retail space – continued its steady momentum in the second quarter, recording 39.4 million square feet of net absorption in the first six months of 2016, nearly equaling the 40.2 million square feet absorbed during the record-setting first half of last year.
The U.S. and Philadelphia commercial real estate market vacancy rate ticked down another 15 basis points to 10.6% in the second quarter of 2016, well below the long-term historical vacancy rate of 11.3%. CoStar analysts expect the office vacancy rate to continue trending lower before bottoming out at around 10.2% in 2018, about the same as lowest point of the last real estate cycle.
“Basically, we expect to have two more years of occupancy recovery in the office market,” noted Walter Page, CoStar’s director of office research, who presented the Mid-Year 2016 Office Review and Forecast along with Hans Nordby, managing director for CoStar Portfolio Strategy and CoStar senior real estate economist Paul Leonard.
This report on national and Philadelphia commercial properties was made through Philadelphia commercial real estate broker Wolf Commercial Real Estate, a Philadelphia commercial real estate brokerage firm.
Several markets including U.S. and Philadelphia commercial real estate properties showed marked improvement at mid-year, including ones that were previously struggling, such as Phoenix, which posted positive absorption of 3.4 million square feet.
In Seattle, which has enjoyed a particularly strong run, Amazon’s ongoing expansion helped drive 3.1 million square feet in net absorption. Even Washington DC saw a welcome return of strength in the second quarter after several years of flat demand growth. The D.C. office market absorbed a respectable 2.3 million square feet over the last four quarters.
“Finally, we’re starting to see some momentum in the D.C. marketplace, which should allow the vacancy numbers to start inching downward,” said Page.
There were several notable exceptions among national and Philadelphia commercial real estate listings. The energy sector slowdown and corporate relocations related to the completion of several pending build-to-suit projects played a role in Houston and Dallas, which recorded absorption declines of 2.4 million and 3.7 million square feet, respectively, since mid-year 2015. San Francisco, Raleigh, Boston and San Diego also logged declines due to a variety of factors.
But for the most part, the vast majority of office submarkets — 66% — saw their office vacancy decline in the second quarter, and more than half of the U.S. commercial real estate market – including Philly office space and Philly retail space – have a lower vacancy rate than during the previous market peak in 2006-2007.
In a theme seen in many markets across the country, the supply of available space in newer, higher-quality office buildings is becoming increasingly limited. With relatively little new development in the pipeline based on historical levels, only about 81 million square feet of space is available today in buildings constructed over the last 10 years.
That total is less than half the 167 million square feet of vacant newer space that was available in 2007 among U.S. and Philadelphia commercial real estate listings, according to CoStar’s analysis.
For more information about Philly office space, Philly retail space or other Philadelphia commercial properties, please call 215-799-6900 to speak with Jason Wolf (jason.wolf@wolfcre.com) Leor Hemo (leor.hemo@wolfcre.com) or Lee Fein (lee.fein@wolfcre.com) at Wolf Commercial Real Estate, a leading Philadelphia commercial real estate broker that specializes in Philly office space and Philly retail space.
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